MATURITY SCHEDULES (See Inside Cover) The Bonds are subject to redemption as described herein. See THE BONDS Redemption herein.

Transcription

1 NEW ISSUE FULL BOOK-ENTRY RATINGS: Moody s: Aa2 S&P: AA- (See MISCELLANEOUS Ratings herein.) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the San Diego Unified School District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS. $149,998, SAN DIEGO UNIFIED SCHOOL DISTRICT 2012 General Obligation Bonds (Dedicated Unlimited Ad Valorem Property Tax Bonds) (Election of 2008, Series E) Dated: Date of Delivery Due: July 1, as shown on the inside cover. This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The captioned Bonds are issued pursuant to an authorization granted by the qualified voters in the San Diego Unified School District (the District ) on November 4, 2008 (the Election ), and are payable from ad valorem taxes upon all property subject to taxation by the District, which the Board of Supervisors of the County of San Diego (the County ) is empowered and obligated to levy without limitation as to rate or amount (except for certain personal property which is taxable at limited rates) all as more fully described under SECURITY AND SOURCES OF PAYMENT herein. The Bonds are the sixth issuance of general obligation bonds of the District authorized at the Election. The Bonds are issued on a parity with all other general obligation bonds of the District payable from ad valorem taxes. THE BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT, SECURED AND PAYABLE FROM AD VALOREM PROPERTY TAXES ASSESSED ON TAXABLE PROPERTIES WITHIN THE DISTRICT, WITHOUT LIMITATION AS TO RATE OR AMOUNT. THE BONDS ARE NOT AN OBLIGATION OF THE COUNTY OR OF THE GENERAL FUND OF THE DISTRICT. SEE SECURITY AND SOURCES OF PAYMENT HEREIN. The Bonds are being issued as capital appreciation bonds (the Capital Appreciation Bonds ) and capital appreciation bonds that will convert to current interest bonds (the Convertible CABs ). The Capital Appreciation Bonds will not bear current interest but will increase in value by the accumulation of earned interest from their initial principal amounts on the date of delivery thereof to their respective accreted values at maturity (the Maturity Value ). Interest on the Capital Appreciation Bonds will be compounded on each January 1 and July 1, commencing July 1, 2012, and will be payable solely at maturity as part of the Maturity Value. The Convertible CABs are initially being issued as capital appreciation bonds and will convert to current interest bonds on July 1, 2032 (the Conversion Date ). Prior to the Conversion Date, the Convertible CABs will not bear current interest, but will increase in value by the accumulation of earned interest from their initial principal amounts on the date of delivery thereof to their respective accreted values at the Conversion Date (the Conversion Value ). Prior to the Conversion Date, interest on the Convertible CABs will be compounded on each January 1 and July 1, commencing July 1, No payment of interest will be made to the owners of Convertible CABs prior to or on the Conversion Date. From and after the Conversion Date, the Convertible CABs will bear current interest, such interest to accrue based upon the Conversion Value of the Convertible CABs. Following the Conversion Date, interest on the Convertible CABs will be payable semiannually on each January 1 and July 1, commencing January 1, The Bonds will be issued in book-entry form only, in denominations of $5,000 Maturity Value or Conversion Value or integral multiples thereof. The Bonds will be initially registered in the name of a nominee of The Depository Trust Company ( DTC ). Purchasers will not receive certificates representing their interests in the Bonds. Payments on the Bonds will be made by the Treasurer-Tax Collector of the County of San Diego, as Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See APPENDIX G: BOOK-ENTRY ONLY SYSTEM herein. MATURITY SCHEDULES (See Inside Cover) The Bonds are subject to redemption as described herein. See THE BONDS Redemption herein. De La Rosa & Co. Citigroup J.P. Morgan Goldman, Sachs & Co. The Bonds will be offered when, as and if issued by the District and received by the Underwriters, subject to the approval of validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Certain matters will be passed upon for the District by its General Counsel and for the Underwriters by Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California. Fieldman, Rolapp & Associates, Irvine, California, serves as Financial Advisor to the District, and Fulbright & Jaworski L.L.P., Los Angeles, California serves as Disclosure Counsel to the District in connection with the issuance of the Bonds. The Bonds, in book-entry form, will be available for delivery through the facilities of DTC in New York, New York, on or about May 24, Dated: May 9, 2012

2 MATURITY SCHEDULES $149,998, SAN DIEGO UNIFIED SCHOOL DISTRICT 2012 General Obligation Bonds (Dedicated Unlimited Ad Valorem Property Tax Bonds) (Election of 2008, Series E) CAPITAL APPRECIATION BONDS $23,027, Capital Appreciation Serial Bonds Maturity (July 1) Initial Principal Amount Accretion Rate Maturity Value Yield to Maturity CUSIP (1) (797355) 2032 $7,798, % $22,940, % Q ,563, ,020, Q ,735, ,225, Q ,893, ,490, Q ,036, ,815, R22 $35,585, Capital Appreciation Term Bonds Maturity (July 1) Initial Principal Amount Accretion Rate Reoffering Yield Maturity Value CUSIP (1) (797355) 2049 $18,140, % 5.40% $130,995,000 R ,445, ,475,000 R63 CONVERTIBLE CAPITAL APPRECIATION TERM BONDS Conversion Date: July 1, 2032 Maturity (July 1) Initial Principal Amount Accretion Rate Conversion Value Coupon Upon Conversion Reoffering Yield CUSIP (1) (797355) 2042 $27,754, % $ 78,665, % 5.250% R ,631, ,820, R48 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Underwriters take any responsibility for the accuracy of the CUSIP numbers, which are being provided for reference only.

3 No dealer, broker, salesperson or other person has been authorized by the District or the Underwriters to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been obtained from official sources that are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriters. The information and expression of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. The Bonds have not been registered under the Securities Act of 1933, in reliance upon an exemption contained in such Act. The Bonds have not been registered under the securities laws of any state. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. By placing an order for the Bonds with an Underwriter, you agree that if you are allocated Bonds, the Underwriter may disclose your identity to the District as an initial purchaser of the Bonds, unless you advise your sales representative otherwise. IN CONNECTION WITH THIS INITIAL OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND BANKS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act ), and Section 27A of the United States Securities Act of 1933, as amended (the Securities Act ). Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

4 SAN DIEGO UNIFIED SCHOOL DISTRICT County of San Diego, California BOARD OF EDUCATION Name Position Term Ending Dr. John Lee Evans President December 2012 Scott Barnett Vice President December 2014 Richard Barrera Member December 2012 Shelia Jackson Member December 2012 Kevin Beiser Member December 2014 District Administrators William A. Kowba, Superintendent of Public Education G. Wayne Oetken, Interim Chief Financial Officer Lawrence M. Schoenke, General Counsel Jenny Salkeld, Controller Lee Dulgeroff, Executive Director, Capital Improvement Bond Program Bond Counsel Orrick, Herrington & Sutcliffe LLP San Francisco, California Paying Agent Treasurer-Tax Collector of the County of San Diego San Diego, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Disclosure Dissemination Agent Digital Assurance Certification, L.L.C. Winter Park, Florida

5 TABLE OF CONTENTS INTRODUCTION... 1 Changes Since Date of Preliminary Official Statement... 1 The District... 1 Purpose of the Bonds and Proposition S... 2 Security and Source of Payment for the Bonds... 2 Description of the Bonds... 3 Tax Matters... 3 Offering and Delivery of the Bonds... 4 Continuing Disclosure... 4 Professionals Involved in the Offering... 4 Other Information... 4 PLAN OF FINANCE... 4 The Project... 4 ESTIMATED SOURCES AND USES OF FUNDS... 5 THE BONDS... 5 Authority for Issuance... 5 General Provisions... 6 Redemption... 7 Notice of Redemption... 9 Conditional Notice of Redemption... 9 Rescission of Notice... 9 Defeasance... 9 Annual Debt Service SECURITY AND SOURCES OF PAYMENT General Teeter Plan Assessed Valuation Tax Rates and Levies Tax Rates Secured Tax Charges and Delinquencies District Debt Largest Taxpayers TAX MATTERS General LEGAL MATTERS Legality for Investment in California Continuing Disclosure No Litigation Legal Opinion MISCELLANEOUS Ratings Underwriting Financial Advisor Additional Information Page i

6 APPENDIX A: DISTRICT ECONOMY... A-1 APPENDIX B: FINANCIAL AND ECONOMIC INFORMATION FOR THE DISTRICT... B-1 APPENDIX C: AUDITED FINANCIAL STATEMENTS FOR THE DISTRICT FOR THE YEAR ENDED JUNE 30, C-1 APPENDIX D: PROPOSED FORM OF OPINION OF BOND COUNSEL... D-1 APPENDIX E: PROPOSED FORM OF DISCLOSURE DISSEMINATION AGREEMENT... E-1 APPENDIX F: SAN DIEGO COUNTY INVESTMENT POOL... F-1 APPENDIX G: BOOK-ENTRY ONLY SYSTEM... G-1 APPENDIX H: TABLE OF ACCRETED VALUES... H-1 ii

7 $149,998, SAN DIEGO UNIFIED SCHOOL DISTRICT 2012 General Obligation Bonds (Dedicated Unlimited Ad Valorem Property Tax Bonds) (Election of 2008, Series E) INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. THE BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT, SECURED AND PAYABLE FROM AD VALOREM PROPERTY TAXES ASSESSED ON TAXABLE PROPERTIES WITHIN THE DISTRICT, WITHOUT LIMITATION AS TO RATE OR AMOUNT. THE BONDS ARE NOT AN OBLIGATION OF THE COUNTY OR OF THE GENERAL FUND OF THE DISTRICT. SEE SECURITY AND SOURCES OF PAYMENT HEREIN. This Official Statement, which includes the cover and inside cover pages and appendices hereto, is provided to furnish information in connection with the sale of San Diego Unified School District 2012 General Obligation Bonds (Dedicated Unlimited Ad Valorem Property Tax Bonds) (Election of 2008, Series E), in the aggregate issue amount of $149,998, (the Bonds ). The issuance of the Bonds was authorized by a resolution adopted on April 10, 2012, by the Board of Education of the San Diego Unified School District (the District Resolution) and a resolution adopted on May 1, 2012, by the Board of Supervisors of the County of San Diego (the County Resolution and, together with the District Resolution, the Resolutions ). Changes Since Date of Preliminary Official Statement On May 10, 2012, local San Diego press reports stated that one of the District s Board of Education (the Board ) members, Scott Barnett, is advocating for an official and voluntary declaration of District insolvency. In response, Board President John Lee Evans stated that the District will balance the budget and will do the best we can academically with our limited resources. The Board as a whole has taken no position with respect to any insolvency. See APPENDIX B State Funding of Education; State Budget Process Board Statements to the Press herein. On May 15, 2011, the California Department of Finance released the Governor s May Revision to the Budget. Accordingly, the section entitled State Funding of Education; State Budget Process in APPENDIX B has been revised to include a summary of this report. The District The San Diego Unified School District (the District ) serves an area of 211 square miles, encompassing most of the populated portion of the City of San Diego (the City ). Approximately 85% of the City s assessed valuation lies within the District. In terms of enrollment, the District is the second largest school district in the State of California (the State ) and the eighth largest urban school district in the country with an estimated enrollment of 131,378 students (including charter school students) as of Fall

8 The District is governed by a five-member Board of Education nominated by geographic subdistricts and elected by the entire school district to serve alternating four-year terms. The chief executive officer of the District is the Superintendent of Public Education of the District. As of April 30, 2012, the District operated 117 elementary schools, 25 middle/junior high schools, 28 senior high schools, 8 atypical schools, 3 alternative schools, 46 preschools, 24 child development centers, 5 special education centers and is the sponsoring agency for 42 charter schools. The District s budget for the fiscal year exceeds $1 billion. See APPENDIX B: FINANCIAL AND ECONOMIC INFORMATION FOR THE DISTRICT. The District s budget for all funds provides for the employment of approximately 6,078 full-time equivalent certificated staff positions, 5,113 full-time equivalent classified and over 4,000 active hourly certificated and classified employees. Purpose of the Bonds and Proposition S The District intends to use the proceeds from the sale of the Bonds to construct and improve various school facilities of the District under Proposition S (as defined below). The Bonds are issued pursuant to certain provisions of the State Education Code and other applicable law and pursuant to the Resolutions. See THE BONDS Authority for Issuance. The District received authorization at a Proposition 39 election held on November 4, 2008, by more than 68% of the votes cast by eligible voters within the San Diego Unified School District on the measure to issue general obligation bonds in an amount not to exceed $2,100,000,000 for the purposes summarized as follows: repairing outdated student restrooms, deteriorated plumbing and roofs; upgrading career/vocational classrooms and labs; providing up-to-date classroom technology; improving school safety/security; replacing dilapidated portable classrooms; upgrading fire alarms; and removing hazardous substances ( Proposition S ). On May 7, 2009, the District issued $141,157, aggregate initial principal amount of its 2009 General Obligation Bonds (Election of 2008, Series A) and $38,840,000 aggregate principal amount of 2009 General Obligation Bonds (Election of 2008, Series B) Qualified School Construction Bonds (Tax Credit Bonds). On August 18, 2010, the District issued $163,869, aggregate initial principal amount of its 2010 General Obligation Bonds (Election of 2008, Series C), $16,130,000 aggregate principal amount of 2010 General Obligation Bonds (Election of 2008, Series D-1) Qualified School Construction Bonds (Taxable Direct Subsidy Bonds) and $20,000,000 aggregate principal amount of 2010 General Obligation Bonds (Election of 2008, Series D-2) Qualified School Construction Bonds (Taxable Direct Subsidy Bonds). The Bonds are the sixth issuance under Proposition S, under which the District has remaining authorization of $1,730,002, All general obligation bonds of the District are issued on a parity with one another; however, the District has issued several series of cross-over refunding bonds, which are secured only by amounts in their respective escrow funds until the respective dates established for their cross-over refundings. See the table below THE BONDS Annual Debt Service for details concerning those refundings. Security and Source of Payment for the Bonds The Bonds are payable from ad valorem taxes upon all property subject to taxation by the District, which the County Board of Supervisors is empowered and obligated to levy without limitation as to rate or amount (except with respect to certain personal property which is taxable at limited rates). Pursuant to Section of the Education Code of the State, the County is obligated to levy a tax for each year in which general obligation bonds of the District are outstanding, in an amount not less than that sufficient to pay principal and interest on the Bonds due during that year. See THE BONDS Security and Source of Payment. 2

9 Description of the Bonds Payments. The Bonds will be issued as Capital Appreciation Bonds and Convertible CABs. The Capital Appreciation Bonds will not bear current interest but will increase in value by the accumulation of earned interest from their initial principal amounts on the date of delivery thereof to their respective accreted values at maturity (the Maturity Value ). Interest on the Capital Appreciation Bonds will be compounded on each January 1 and July 1, commencing July 1, 2012, and will be payable solely at maturity. The Convertible CABs will initially be issued as capital appreciation bonds and will convert to current interest bonds on July 1, 2032 (the Conversion Date ). Prior to the Conversion Date, the Convertible CABs will not bear current interest but will increase in value by the accumulation of earned interest from their initial principal amounts on the date of delivery thereof to their respective accreted values at the Conversion Date (the Conversion Value ). Prior to the Conversion Date, interest on the Convertible CABs will be compounded on each January 1 and July 1, commencing July 1, No payment of interest will be made to the registered owners (the Owners ) of Convertible CABs prior to or on the Conversion Date. From and after the Conversion Date, the Convertible CABs will bear current interest, such interest to accrue based upon the Conversion Value of the Convertible CABs. Following the Conversion Date, interest on the Convertible CABs will be payable semiannually on each January 1 and July 1, commencing January 1, Principal or Maturity Value of the Bonds is payable when due upon surrender of the Bonds at the office of the Paying Agent. References herein to payment of principal of the Bonds includes payment of the Maturity Value of Capital Appreciation Bonds and payment of the Conversion Value of the Convertible CABs at their maturity. As long as DTC (defined below) is the registered owner of the Bonds and DTC s book-entry method is used for the Bonds, the Paying Agent will send any notice of redemption or other notices to Owners only to DTC. The Bonds mature on July 1 in the years indicated on the inside cover page hereof. Denomination and Registration. The Bonds will be issued in fully registered form only, without coupons, and will be issued in denominations and amounts with maturity values or conversion values of $5,000 or any integral multiple thereof. The Bonds will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds. Owners will not receive physical certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. See THE BONDS General Provisions and APPENDIX G: BOOK-ENTRY ONLY SYSTEM. Tax Matters In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS. 3

10 Offering and Delivery of the Bonds The Bonds are offered when, as and if issued, subject to approval as to their validity by Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of DTC in New York, New York, on or about May 24, Continuing Disclosure The District has covenanted for the benefit of the Owners (including beneficial owners of the Bonds) to provide certain financial information and operating data relating to the District (the Annual Report ) by a date not later than nine months following the end of the District s fiscal year (which ends June 30), commencing with the report for the Fiscal Year (which is due no later than March 31, 2013), and to provide notices of the occurrence of certain enumerated events, if material. See APPENDIX E: PROPOSED FORM OF DISCLOSURE DISSEMINATION AGREEMENT. The District has entered into a Disclosure Dissemination Agent Agreement ( Disclosure Dissemination Agreement ) for the benefit of the Owners with Digital Assurance Certification, L.L.C. ( DAC ) under which the District has designated DAC as Disclosure Dissemination Agent. See LEGAL MATTERS Continuing Disclosure herein. Professionals Involved in the Offering Orrick, Herrington & Sutcliffe LLP, San Francisco, California, is acting as Bond Counsel to the District with respect to the Bonds. Certain matters will be passed upon for the District by its General Counsel. Fieldman, Rolapp & Associates, Irvine, California, is acting as Financial Advisor to the District with respect to the Bonds. Fulbright & Jaworski L.L.P., Los Angeles, California, is acting as Disclosure Counsel to the District. Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California is acting as counsel to the Underwriters with respect to the Bonds. The Treasurer-Tax Collector of the County of San Diego is acting as Paying Agent with respect to the Bonds. Bond Counsel, Disclosure Counsel and Underwriters Counsel will receive compensation contingent upon the sale and delivery of the Bonds. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Bonds are available from the San Diego Unified School District, 4100 Normal Street, Room 3209, San Diego, California , Attention: Chief Financial Officer. The District may impose a charge for copying, handling and mailing such requested documents. The Project PLAN OF FINANCE Project Description. The District received authorization under Proposition S to issue general obligation bonds in an amount not to exceed $2,100,000,000 for the purposes summarized as follows: repairing outdated student restrooms, deteriorated plumbing and roofs; upgrading career/vocational classrooms and labs; providing up-to-date classroom technology; improving school safety/security; replacing dilapidated portable classrooms; upgrading fire alarms; and removing hazardous substances. Proceeds from the sale of the Bonds will be used only for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the 4

11 acquisition or lease of real property for school facilities, subject to the limitations set forth in the full text of Proposition S. See INTRODUCTION Purpose of the Bonds and Proposition S herein. Project Schedule; Expenditure of Taxable Bond Proceeds. On May 7, 2009, the District issued $38,840,000 aggregate principal amount of 2009 General Obligation Bonds (Election of 2008, Series B) Qualified School Construction Bonds (Tax Credit Bonds) (the 2009 QSCBs ). Pursuant to applicable provisions of the Code, the proceeds of the 2009 QSCBs must be expended in full by a date no later than May 6, As of March 14, 2012, all of such 2009 QSCB proceeds have been expended. On August 18, 2010, the District issued $16,130,000 aggregate principal amount of 2010 General Obligation Bonds (Election of 2008, Series D-1) Qualified School Construction Bonds (Taxable Direct Subsidy Bonds) (the Series D-1 Bonds ) and $20,000,000 aggregate principal amount of 2010 General Obligation Bonds (Election of 2008, Series D-2) Qualified School Construction Bonds (Taxable Direct Subsidy Bonds) (the Series D-2 Bonds and together with the Series D-1 Bonds, the 2010 QSCBs ). The District is obligated to expend 100% of the available proceeds of the 2010 QSCBs by a date no later than August 17, As of March 13, 2012, the District expended an amount not less than $18,522,437 from the proceeds of the 2010 QSCBs and anticipates that all of such proceeds will be expended by June 30, ESTIMATED SOURCES AND USES OF FUNDS The net proceeds of the Bonds are expected to be applied as follows: Sources of Funds Series E Bonds Principal or Issue Amount of Bonds $149,998, Original Issue Premium 887, Total Sources $150,886, Uses of Funds Deposit to Building Fund $149,998, Deposit to Interest and Sinking Fund 10, Underwriters Discount and Costs of Issuance (1) 876, Total Uses $150,886, (1) Costs of Issuance includes Bond Counsel and Disclosure Counsel fees, rating agency fees, Financial Advisor fees, printing fees, and other issuance expenses. See MISCELLANEOUS Underwriting, herein, for specific information regarding Underwriters compensation. Authority for Issuance THE BONDS The Bonds are issued pursuant to the provisions of Articles 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California and other applicable law, and pursuant to the District Resolution adopted by the District Board of Education on April 10, 2012 and the County Resolution adopted by the County Board of Supervisors on May 1, The District Resolution requests that the County issue the Bonds on behalf of the District and directs that the District enter into a Second Supplemental Paying Agent Agreement that is supplemental to the Paying Agent Agreement dated as of August 1, 2010 and the First Supplemental Paying Agent Agreement dated as of March 1, 2012 (collectively, the Paying Agent Agreement ) with the County through the office of the Treasurer Tax Collector of the County of San Diego (the Treasurer ), under which provisions are made for the 5

12 payment of the Bonds from ad valorem taxes. See the caption THE BONDS Security and Sources of Payment. Capital Appreciation Bonds. Certain of the Bonds are issued as Capital Appreciation Bonds. The Capital Appreciation Bonds shall not bear current interest. Each Capital Appreciation Bond shall increase in value by the accumulation of earned interest from its initial principal amount on the date of issuance thereof at a constant rate of interest compounded semiannually commencing July 1, 2012 (with straight line interpolations between such semiannual compounding dates) to its stated accreted value at maturity as set forth in the Table of Accreted Values of Capital Appreciation Bonds attached hereto as APPENDIX H. Interest on the Capital Appreciation Bonds shall accrue at the rates set forth on the inside cover hereof, computed on the basis of a 360-day year comprised of twelve (12) 30-day months, shall be compounded commencing on July 1, 2012, and semiannually thereafter on January 1 and July 1 in each year and shall be payable upon maturity or upon prior sinking fund redemption. The Capital Appreciation Bonds shall be issued as fully registered bonds in denominational amounts of $5,000 accreted value at maturity (the Maturity Value ) or any integral multiple thereof, except that the first numbered Capital Appreciation Bond may be issued in a denomination such that the maturity value of such Capital Appreciation Bond shall not be an integral multiple of $5,000. Each Capital Appreciation Bond shall be dated the date of its initial delivery and shall mature on the date and in the Maturity Value set forth on the inside cover page hereto. The Maturity Value of the Capital Appreciation Bonds shall be payable in lawful money to the Owner thereof upon the surrender thereof at the office of the Paying Agent. So long as Cede & Co. or its registered assigns shall be the registered owner of any of the Capital Appreciation Bonds, payment shall be made to Cede & Co. by wire transfer as provided in the Paying Agent Agreement. Convertible CABs. Certain of the Bonds will be issued as Convertible CABs. Prior to July 1, 2032 (the Conversion Date ), the Convertible CABs shall not bear current interest. Prior to the Conversion Date, each Convertible CAB shall increase in value by the accumulation of earned interest from its initial principal amount on the date of issuance thereof at a constant rate of interest compounded semiannually commencing July 1, 2012 (with straight line interpolations between such semiannual compounding dates) to its stated accreted value at the Conversion Date, as set forth in the Table of Accreted Values of Convertible CABs attached hereto as APPENDIX H. Prior to the Conversion Date, interest on the Convertible CABs shall be computed on the basis of a 360-day year comprised of twelve (12) 30-day months, shall be compounded commencing on July 1, 2012, and semiannually thereafter on January 1 and July 1 in each year. No interest shall be payable on any Convertible CAB prior to or on the Conversion Date. Following the Conversion Date, interest on the Convertible CABs shall be computed based upon the Conversion Value and on the basis of a 360-day year comprised of twelve (12) 30-day months and shall be payable on each Interest Payment Date, commencing January 1, Following the Conversion Date, each Convertible CAB shall bear interest and be payable as current interest bonds. The Convertible CABs shall be issued as fully registered bonds in denominational amounts of $5,000 Conversion Value and any integral multiple thereof. Each Convertible CAB shall be dated the date of its initial delivery and shall mature on the date and at the Conversion Value set forth on the inside cover hereof. General Provisions The Bonds will be issued in fully registered form only, without coupons. No Bond shall have principal maturing on more than one principal maturity date. The Bonds will be initially registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Interest on and principal or Maturity Value of the Bonds are payable in lawful money of the United States of 6

13 America. Principal is payable when due upon surrender of the Bonds at the office of the Paying Agent. The Paying Agent, the District, the County and the Underwriters of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, or interest in the Bonds. For information about the securities depository and DTC s book-entry system, see APPENDIX G: BOOK-ENTRY ONLY SYSTEM. After the Conversion Date, interest on the Convertible CABs is payable in lawful money to the person whose name appears on the bond registration books of the Paying Agent as the registered owner thereof as of the close of business on the Record Date therefor, whether or not such day is a business day, such interest to be paid by check or draft mailed on such Interest Payment Date to such registered owner at such registered owner s address as it appears on such registration books or at such address as the registered owner may have filed with the Paying Agent for that purpose. The interest payments on the Bonds may be made by federal fund wire transfer to any registered owner of at least $1,000,000 of outstanding Bonds who has requested in writing such method of payment of interest on the Bonds prior to the close of business on the applicable Record Date. Registration, Transfer and Exchange of Bonds. Any Bond may be exchanged for Bonds of like tenor, maturity and principal amount upon presentation and surrender at the principal corporate trust office of the Paying Agent, together with a request for exchange signed by the Owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. Redemption The Bonds are subject to redemption as follows: Capital Appreciation Bonds. The Capital Appreciation Serial Bonds are not subject to optional redemption prior to their respective stated maturities. The Capital Appreciation Term Bonds maturing on July 1, 2049 are subject to mandatory sinking fund redemption prior to their stated maturity, in part by lot, at a Redemption Price equal to the Accreted Value of such Capital Appreciation Bonds to be redeemed, without premium, on each July 1 commencing July 1, 2048, in the following principal amounts and the Accreted Values thereof on the redemption date which are the sinking fund installments for such Capital Appreciation Bonds: Redemption Date (July 1) Principal Amounts to be Redeemed Accreted Value at Redemption 2048 $9,090, $62,238, * 9,049, ,350, * Final Maturity. The Capital Appreciation Term Bonds maturing on July 1, 2051 are subject to mandatory sinking fund redemption prior to their stated maturity, in part by lot, at a Redemption Price equal to the Accreted Value of such Capital Appreciation Bonds to be redeemed, without premium, on each July 1 commencing July 1, 2050, in the following principal amounts and the Accreted Values thereof on the redemption date which are the sinking fund installments for such Capital Appreciation Bonds: 7

14 Redemption Date (July 1) Principal Amounts to be Redeemed Accreted Value at Redemption 2050 $8,745, $68,618, * 8,699, ,045, * Final Maturity. Convertible CABs. The Convertible CABs maturing on or before July 1, 2042, are not subject to optional redemption prior to their stated maturity dates. The Convertible CABs maturing on and after July 1, 2047, are subject to optional redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after July 1, 2042 at a redemption price equal to the Conversion Value thereof, together with accrued interest thereon from the last interest payment date for which interest has been paid (or the Conversion Date, if no interest has been paid) to the date of redemption, without premium. The Convertible CABs maturing on July 1, 2042 are subject to mandatory sinking fund redemption prior to their stated maturity, in part by lot, at a Redemption Price equal to the Conversion Value of such Convertible CABs to be redeemed, without premium, together with interest accrued thereon from the last interest payment date for which interest has been paid on each July 1 commencing July 1, 2037, in the following principal amounts, the Accreted Value of which at Conversion are the sinking fund installments for such Convertible CABs: Redemption Date (July 1) Principal Amounts Redemption Price and Conversion Value 2037 $5,366, $15,210, ,163, ,470, ,029, ,925, * 9,149, ,060,000 * Final Maturity. The Convertible CABs maturing on July 1, 2047 are subject to mandatory sinking fund redemption prior to their stated maturity, in part by lot, at a Redemption Price equal to the Conversion Value of such Convertible CABs to be redeemed, without premium, together with interest accrued thereon from the last interest payment date for which interest has been paid on each July 1 commencing July 1, 2043, in the following principal amounts, the Accreted Value of which at Conversion are the Sinking Fund Installments for such Convertible CABs: Redemption Date (July 1) Principal Amounts Redemption Price and Conversion Value 2043 $10,085, $29,295, ,303, ,830, ,619, ,655, ,043, ,790, * 15,579, ,250,000 * Final Maturity. 8

15 Notice of Redemption Notice of redemption for the Bonds will be mailed postage prepaid not less than 20 nor more than 60 days prior to the redemption date (i) by first class mail to the respective Owners thereof at the addresses appearing on the bond registration books, and (ii) as may be further required in accordance with the Disclosure Dissemination Agreement. See APPENDIX E: PROPOSED FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT herein. The actual receipt by any Owner of notice of such redemption will not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, will not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the date fixed for redemption. When notice of redemption has been given, substantially as described above, and when the amount necessary for the payment of principal of and premium, if any, is set aside for such purpose, the Bonds designated for redemption will become due and payable on the date fixed for redemption thereof, and upon presentation and surrender of said Bonds at the place specified in the notice of redemption, such Bonds will be redeemed and paid at said redemption price out of the money provided therefor, and interest will cease to accrue on such Bonds called for redemption after the redemption date specified in such notice, and the registered owners of said Bonds so called for redemption after such redemption date will look for the payment of such Bonds and the premium thereon only to such money provided therefor. Conditional Notice of Redemption Any notice of optional redemption of the Bonds delivered in accordance with the Paying Agent Agreement may be conditional, and if any condition stated in the notice of redemption shall not have been satisfied on or prior to the redemption date: (i) said notice shall be of no force and effect, (ii) the District shall not be required to redeem such Bonds, (iii) the redemption shall not be made and (iv) the Paying Agent shall within a reasonable time thereafter give notice to the persons in the manner in which the conditional notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled. Rescission of Notice The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Bonds so called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. Defeasance The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money or Defeasance Securities (defined below), in an amount which will, together with the interest to accrue thereon and available monies then on deposit in the interest and sinking fund of the District, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. In such event, the Owners of such Bonds shall cease to be entitled to the obligation of the District to levy taxes for the payment thereof, and such obligation and all agreements and covenants of the District and of the County to such Owners under the Resolution and under the Bonds shall thereupon be satisfied and discharged and shall terminate, except only that the District shall remain liable for payment 9

16 of all principal, interest and premium, if any, represented by the Bonds, but only out of monies on deposit in the interest and sinking fund or otherwise held in trust for such payment. Defeasance Securities means (i) direct, non-callable obligations of the United States Treasury; (ii) direct non-callable and non-prepayable obligations which are unconditionally guaranteed by the United States of America as to full and timely payment of principal and interest; (iii) non-callable, nonprepayable coupons from the above securities which are stripped pursuant to United States Treasury programs; (iv) non-callable and non-prepayable (or irrevocably called to a specified redemption date) refunded municipal bonds that are backed by an escrow funded with obligations of or guaranteed by the United States of America; (v) Resolution Funding Corporation (REFCORP) securities consisting of interest components stripped by the Federal Reserve Bank of New York; (vi) non-callable, and nonprepayable fixed rate Israel Notes guaranteed as to principal and interest by the United States of America through the United Agency for International Development (provided that, such notes are Aaa -rated and mature at least four business days before funds are needed for refunded bond debt service payments); (vii) United States State and Local Government Series (SLGS); and (viii) the following non-callable, nonprepayable obligations of federal government-sponsored agencies that are not backed by the full faith and credit of the U.S. Government: Federal Home Loan Bank, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Tennessee Valley Authority, Farm Credit System, United States Import-Export Bank, United States Department of Housing and Urban Development, Farmers Home Administration, General Services Administration and United States Maritime Administration (provided such entities maintain a rating of Aaa ). 10

17 Annual Debt Service The annual debt service on the Bonds and other outstanding general obligation bonds of the District following the issuance of the Bonds is shown below: San Diego Unified School District Annual Debt Service Year Ending (July 1) Outstanding Prop. MM General Obligation Bonds Total Debt Service (1) Outstanding Prop. S General Obligation Bonds Total Debt Service (4) Series R-1 Total Debt Service (5) Series R-2 Total Debt Service (5) Principal Interest Compounded Interest Totals 2012 $ 53,504, (2) $ 3,145, $ - $ - $ - $ - $ - $ 56,649, ,100, (3) 3,400, ,501, ,042, ,440, ,483, ,031, ,250, ,282, ,197, ,220, ,417, ,748, ,085, ,833, ,065, ,930, ,995, ,933, ,400, ,333, ,167, ,900, ,067, ,778, ,900, ,678, ,453, ,900, ,354, ,188, ,400, ,588, ,358, ,525, ,883, ,099, ,850, ,950, ,447, ,150, ,597, ,624, ,030, ,654, ,286, ,999, ,285, ,531, ,949, ,655, ,136, ,429, ,395, ,824, ,167, ,640, ,413, ,221, ,637, ,413, ,798, ,141, ,991, ,527, ,413, ,563, ,063, ,456, ,025, ,577, ,413, ,735, ,063, ,489, ,280, ,122, ,413, ,893, ,063, ,596, ,090, ,372, ,413, ,036, ,063, ,778, ,665, ,742, ,413, ,366, ,063, ,843, ,430, ,222, ,413, ,163, ,265, ,306, ,371, ,832, ,413, ,029, ,348, ,895, ,519, ,572, ,303, ,302, ,178, ,447, ,286, ,302, ,035, ,467, ,194, ,302, ,865, ,829, ,632, ,085, ,934, ,209, ,861, ,972, ,303, ,359, ,526, ,161, ,467, ,619, ,594, ,035, ,717, ,132, ,043, ,624, ,746, ,546, ,982, ,579, ,432, ,670, ,664, ,642, ,090, ,148, ,881, , ,049, ,300, ,476, ,865, ,745, ,872, ,483, ,699, ,345, ,045, Total $2,086,560, $1,328,418, $164,690, $317,315, $149,998, $161,785, $452,227, $4,660,997, (1) Includes debt service payable on any outstanding general obligation crossover refunding bonds issued to date following the respective crossover dates and excludes related debt service on outstanding bonds expected to be redeemed from the escrowed funds. Debt service payments through the respective Crossover Dates for each refunding series are payable from each respective Escrow Fund. Subsequent to a successful crossover for any refunding series, the debt service for such series will be payable from ad valorem taxes. (2) July 1, 2012 Crossover Date for Prop. MM Series D, Series D-1, Series D-2 and Series D-3 Bonds. (3) July 1, 2013 Crossover Date for Prop. MM Series E, Series E-1 and Series E-2 Bonds. (4) (5) 11 Series E Bonds Debt Service Interest payments for the Prop. S 2010 QSCBs are expected to be paid from Subsidy Payments from the United States Department of the Treasury and, therefore, such interest payments are not included in this table. The District issued General Obligation Refunding Bonds, Series R-1 and Series R-2, on March 15, 2012 resulting in a tax rate reserve in excess of $50 million. See APPENDIX B FINANCIAL AND ECONOMIC INFORMATION FOR THE DISTRICT Long Term Obligations General Obligation Refunding Bonds.

18 SECURITY AND SOURCES OF PAYMENT General In order to provide sufficient funds for repayment of principal and interest when due on the Bonds, the Board of Supervisors of the County is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the District. When collected, the tax revenues will be deposited by the County Treasurer in the District s Interest and Sinking Fund, which is required to be maintained by the County and to be used solely for the payment of general obligation bonds of the District. The District will provide the County Treasurer with a schedule of the debt service on the Bonds for purposes of the County s annual tax levy, as required by Section of the Education Code. Following receipt of that schedule, the County Auditor-Controller will take such action as is necessary to spread the annual amount of debt service throughout the District so that property taxes are levied in each year in an amount at least sufficient to provide for payment of said debt service in full. See Tax Rates and Levies herein. Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts levy property taxes for payment of voterapproved bonds and receive property taxes from a portion of the 1% general County levy for general operating purposes as well. Under California law, the District s funds are deposited with the San Diego County Treasurer- Tax Collector and invested as provided for under the investment policy of the County. See APPENDIX F: SAN DIEGO COUNTY INVESTMENT POOL. The Paying Agent Agreement also permits all moneys in any of the funds or accounts established pursuant to the Paying Agent Agreement to be invested by the Paying Agent solely in certain permitted investments as defined therein (the Permitted Investments ), as directed in writing by the District prior to the making of such investment. Moneys in all funds and accounts held by the Paying Agent shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Paying Agent Agreement. Teeter Plan The County, since the Fiscal Year, has operated under provisions of Revenue and Taxation Code Sections (commonly referred to as the Teeter Plan ) pursuant to which public agencies in the County will receive their total secured tax levies and special assessments irrespective of actual collections and delinquencies. Pursuant to such provisions, the County establishes a delinquency reserve and assumes responsibility for all secured delinquencies. Because of this method of tax collection, the District is allocated 100% collection of its total secured tax levies. Under County policy, assessments for general obligations bonds are covered by the Teeter Plan. This method of tax collection and distribution is, however, subject to future discontinuance if demanded by the participating entities or upon action by the County Board of Supervisors. Further, the County may take action to discontinue the Teeter Plan with respect to any tax levying agency in the County if the rate of secured tax delinquency in any year exceeds 3% of the total of all taxes and assessments of that agency. The delinquency rate for taxes collected in the District are currently well under 3%. See Secured Tax Changes and Delinquencies herein. 12

19 The District knows of no petition for the discontinuance of the Teeter Plan now pending in the County. Assessed Valuation The annual tax rate will be based on the assessed value of taxable property in the District. Changes in the annual debt service on the District s outstanding general obligation bonds and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control, such as economic recession, deflation of land values, a relocation of businesses out of the District or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood, fire or other natural disaster, could cause a reduction in the assessed value of taxable property in the District and, all other factors being equal, necessitate a corresponding increase in the annual tax rate. Conversely, factors such as increased assessed value of taxable property and/or an increase in the numbers of property taxpayers within the District could, all other factors being equal, necessitate a corresponding decrease in the annual tax rate. As required by State Law, the District utilizes the services of the County of San Diego for the assessment and collection of taxes for District purposes. District taxes are collected at the same time and on the same tax rolls as are County, city and other special district taxes. Constitutional and Statutory Initiatives Article XIIIA of the California Constitution. On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the California Constitution ( Article XIIIA ). Article XIIIA limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and (as a result of an amendment to Article XIIIA approved by California voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property that has been approved on or after July 1, 1978 by two-thirds of the voters voting on such indebtedness and (as a result of a constitutional amendment approved by California voters on November 7, 2000) on bonded indebtedness to furnish and equip school facilities approved by 55 percent of the voters voting on the bond measure. See APPENDIX B Constitutional and Statutory Initiatives for additional information regarding Articles XIIIA, XIIIB, XIIIC and XIIID of the California Constitution, as well as Propositions 98, 111 and 39 that may affect District revenues or the District s ability to expend revenues. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment. Assessed value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. As a result, property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than the market value of the property. Similar property that has recently been acquired may have a substantially higher assessed value reflecting the recent acquisition price. Increases in assessed value in a taxing area due to the change in ownership of property may occur even when the rate of inflation or consumer price index do not permit an increase in assessed valuation of property that does not change ownership. Proposition 13 has had the effect of stabilizing assessed valuation such that it does not fluctuate as significantly as the market value of property, but instead gradually changes as longer owned residential properties are transferred and reassessed upon such transfer. On June 18, 1992, the United States Supreme Court issued a decision 13

20 upholding the constitutionality of Article XIIIA (Nordlinger v. Hahn, 112 S. Ct. 2326, 120 L. Ed. 2d 1 (1992)). Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Proposition 8, approved by the voters in November of 1978, provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on the Bonds. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property is shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property values included in this Official Statement are shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Prospective purchasers of the Bonds should be aware that, notwithstanding any decrease in Assessed Valuation in any fiscal year, the levy by the County to pay debt service on the Bonds during that fiscal year remains unaffected. The consequence of any decrease in Assessed Valuation is a concomitant increase in the tax rate on taxable property so that the same amount of tax revenues may be collected from taxpayers to cover debt service on the Bonds in full. 14